The Philippine Institute of Certified Public Accountants conducted a study of the progress of micro-financing in the Philippines. The results of the study are discouraging. The study revealed that incidences of loan defaults among micro borrowers were high; so high that government micro lending programs could not continue, as funds could not be replenished. Many of the borrowers felt no need to pay the loans as they thought it as a grant (read entitlement). The study highlighted the failure of government and private enterprises in implementation of micro-financing.
But how about the people who got the micro-loans, what did they do with the money? Its ok to have some borrowers default, but to the point that the entire program could no longer go on? This is a bad reflection on Filipinos. The poor and middle classes always condemn Marcos, Ramos, GMA, et al for their thievery. But in this one instance, a good number of poor Filipinos were given loans to build businesses, but what did they do? They defaulted because they felt the loans were grants; no matter how they rationalize it in their minds what they did is thievery. Their act has now prevented others from having a chance.
The good news is the government and private entities have since adapted and are slowly implementing more effective micro lending programs. The following are the key measures adapted by government and non-government entities regarding micro lending policies:
1) Differentiate social from financial intermediation programs. (Direct credit programs of the government were unsuccessful because of high overhead costand high incidence of non-payment of loans. People mistook the creditextended by the government as social assistance, which they do not need torepay. In this regard, to avoid the said misconception, the government shouldrefrain from acting as direct financial intermediary and let the non-governmental organizations act as financial conduits).
2) Initiate reforms that will create a financial system conducive to the operationsof financing conduits. (The financial and market reforms that took place inthe Philippines included the lifting of the interest rate ceiling; liberalization ofbank entry and branching; adoption of market-oriented interest rates;termination of subsidized rediscounting programs and government’s directlending programs).
3) Enact laws upholding the fight against through microfinance. (Social Reformand Poverty Alleviation Act and the General Banking Law 2000).
4) Take on strategies promoting microfinance as a primary tool to fight poverty.(National Strategy for Microfinance prepared by the National Credit Council).
5) Synergize anti-poverty efforts with non-governmental organizations and otherstakeholders to develop a common goal to attain (Philippine Coalition forMicrofinance Standards).
To see the entire study, please visit http://www.picpa.com.ph/articles/vision.pdf